Sébastien Martel - Vice President of Investor Relations Christopher A. Viehbacher - Chairman and CEO Jérôme Contamine -EVP and CFO Peter Guenter - EVP, Global Commercial Operations.

Unidentified Analyst - Citigroup Timothy Anderson - Sanford Bernstein Mark Clark - Deutsche Bank Alexandra Hauber - UBS Vincent Meunier - Morgan Stanley Graham Parry - Bank of America Merrill Lynch Jeff Holford - Jefferies Richard Vosser - JP Morgan Steve Scala - Cowen & Co.

Philippe Lanone - Natixis Michael Leuchten - Barclays Luisa Hector - Exane Fabian Wenner - Kepler Cheuvreux Seamus Fernandez - Leerink Swann.

Ladies and gentlemen, welcome to the Sanofi Third Quarter Results Conference Call. I will now hand over to Mr. Sébastien Martel, Vice President, Head of Investor Relations at Sanofi. Sir, please go ahead..

Thank you and hello everyone and welcome to our Q3 conference call. As always, the slides to this call are available on the Investors page of our website.

Maybe before we begin, as you can see on Slide 2, I'd like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially.

I refer you to our Form 20-F documents on file with the SEC and also our document reference for a description of these risk factors. As you can see on Slide 3, for today's call we have with us Chris Viehbacher, our Chief Executive Officer; Jérôme Contamine, our Executive VP and Chief Financial Officer.

First, Chris will discuss key highlights of the third quarter and first nine months, and then Jérôme will review our financial performance during the period. After that Chris will return and make concluding comments and then we will take your questions.

Peter Guenter, Executive VP, Global Commercial Operations is also with us and he will join us for the Q&A session. I will now turn the call over to Chris..

Thank you Sébastien. So, good set of results here. Net sales up 5.1% at constant exchange rate which has led to earnings per share -- business earnings per share up 10.3% at CER. And as you have seen earlier this year we have put an awful lot of emphasis on cash management and so we actually see free cash flow up 15.8% in the nine months.

The growth platforms which when we started were about 38% of our sales has now grown to 78% of our sales. And those were all up at double-digit collectively at 10%. And obviously we will say more about the diabetes market later. Importantly vaccines are back to growth and animal health doing well.

And we have got some very good progress and I will come back on that on what we are seeing in R&D. So if I go to slide, the next slide you can see that one of the benefits of the quarter has been that the foreign exchange impact has got less. Obviously there has been a strengthening of the dollar versus the euro.

And since 25% of our sales are done in the euro, 75% obviously foreign exchange matters a lot to us but we are not seeing the same erosion as we have seen in the past. But you can see again very good growth on top and bottom line and that has really been driven if you look at Slide 7 by the growth platforms.

And when we set these growth platforms up, the reason we did that was normal years in the industry you will always find that there is something will happen somewhere in the business and the more international businesses become, the more research and development progresses. You are not always going to be able to predict each one.

And I think we set up these growth platforms largely on the basis of having a sustainable growth picture even if one part of the business does more or less well. And what you can see and you know what's happened in the business over the last three years, but this slide shows you from Q1 of 2012 to Q3 of 2014.

We've been largely able to keep these growth platforms in a band of 5% to 10%. Now we take in the Brazilian situation reserve out of here because it would reduce Q3 2013 but would also inflate Q4 of 2013. So we tried to provide a like-for-like basis so it's not benefiting one quarter and penalising another.

But largely you can see that the growth platform model has actually been a benefit. And if I turn to Slide 8, you can see a very strong performance of all of them. Emerging markets are up 7.6%, growing just under double digits for the year at 9.9%.

Partly because we obviously had a slowdown in China last year as the whole market came back, but generally good performance across the picture. Obviously a number of things always happening in the world as you read in the newspaper, so -- but fundamentally a strong growth driver for the company.

Diabetes up 8.3%, I’ll come back and talk about that but still growing for the year-to-date period at 12.5%. Vaccines really driven by flu sales and the return to production in Toronto. Consumer up 13%, Genzyme up 25%, animal health 12%, and the other innovative products will be aligned which plays a strong role for the future.

But we will come back to some of these in a minute. Let's move to Slide 9 on diabetes. So Lantus sales up 8.1% at constant exchange rate, very good growth in Western Europe and remember this is all volume in Western Europe. A very robust 19.7% in emerging markets at constant exchange rate. The U.S.

growth at 5.8% really reflecting the increased competitive pressure at the payer level and there is a question of excise tax that is drilling a hole and that often is hard to assess at the beginning of the year. So it's more of a timing effect on that latter aspect.

Now, so what's going in pricing, you may remember already at the second quarter that we included in our revised guidance for the year where we moved guidance from 5% to 7% to 6% to 8%. That was actually in spite of the competitive pressure.

But we have filed it because I think we've seen and you’ve seen the number of competitors announce that they won accounts and you cannot have pricing pressure unless you have a competitor willing to reduce pricing in another market and in a channel.

And as we went into with the contracting for the third quarter which principally affects contracts, not exclusively, but principally affects contracts from the 1st of January. We are very pleased to see that we've been able to achieve over 90% unrestricted coverage in commercial and non-commercial channels.

So we've actually very little of the market that we can't access. However this did cost more in rebates. We believe we’re in a much stronger position as a result of that. It's absolutely fundamental that we maintain a strong prescription base in Lantus because that will serve really the launch of Toujeo.

And also I think the ability for further competition from Biosimilars has become less obvious. So for us while there may be a shorter term hit, we actually think that this puts our diabetes business on a much more sustainable platform going forward.

So the broad outlook when we look at everything and obviously we have the launch of Toujeo next year, we have the launch of Afrezza, we've got very good growth in the emerging markets. There will be some impact of potential Biosimilar in Europe and then the new contracting. So we net all that out. We look at that as being broadly stable in 2015.

Moving to the next slide, obviously there's been a benefit because our Toronto facility which had had a supplying issue has progressively come back into production. When I say "progressively" because very often you’ve got in excess of one year's leap time on vaccines.

So we haven’t actually fully seen these yet in the recovery of that, but progressively we are back. What’s really been I think a success has been our flu season. Very strong success with our quadrivalent vaccine and there is only two tiers in quadrivalent. And also our high dose flu vaccine which is really meant for people over the age of 65.

That has allowed us to get some premium pricing in the market, in addition to market share from those players who don’t have either of those versions. And we are the only ones for example the high dose flu. So flu has been a strong success for us this year. Other vaccine sales were up 8.4%. This was due to the Pentacel sales, due to improved supply.

What I think has also been extremely important was the completion of the Phase III program for the dengue vaccine. We have submitted the files for a hexvalent vaccine in the U.S. This is the PR5i that we have co-developed with Merck. And we have also started Shanta's investigational Rotavirus vaccine in Phase III.

Rotavirus is a major health concern in emerging markets and really with Shanta we have built a strong portfolio now of very affordable pediatric vaccines for broad populations in emerging markets. And so Rotavirus will help expand that portfolio. As you know we are just coming back to the market now with our pentavalent vaccine Shan5.

Looking at Genzyme on Slide 11, we have got an extremely strong sales ramp up of once daily product Aubagio. Obviously lots of attention goes to Taxotere (ph) but you know we have been quietly working in our corner and this is a product that has been able to find its group of patients and we are seeing nice steady growing that sales.

You have seen the results from two Phase III studies now, TEMSO and TOWER that has now been added to our label which allows us to expand our promotion activities. The same level of expansion in EU is expected in Q4 following a positive CHMP opinion in September 2014. Obviously we are also waiting for the regulatory decision by the FDA on Lemtrada.

Now Merial delivered strong growth in Q3, I think that is a really good sign. I mean I think this has happened for two reasons, including it has been a successful launch of NexGard. This has been the best launch in the animal health space in at least a decade and had very good acceptance. Some of you here in the U.S.

might have seen some of the television commercials for this. But I think there is an element here which is that we are able to stop the bleeding on front line. We have been able to really invest in that.

I think we have been able to put -- find separate channels for those two products and so actually where we lost 18% on front line, we only had a small loss in this year. So, you have got a dynamic. We are not losing so much and we actually have a very strong launch of NexGard.

And obviously a solid performance of Heartgard and pet vaccines, the production of animal health business also performed strongly in the quarter. Now the next slide I think is critical because we have been talking now for years about growth platforms and you don’t know them (ph) and diabetes.

But as you look to what we are actually focused on in the company, it is really getting these new products launch that we have here and this is just a selection. We also plan to take you into a little bit more detail on these products at an Investor Seminar on the 20th of November.

Alirocumab known as brand name Praluent has had nine positive Phase III top line meet ups. And of course we got a priority review voucher in the U.S. and we do expect to go above in the EU by the end of the year. Dengue vaccine, I just spent three weeks in Asia meeting with ministers of health, public health officials.

Death due to dengue were up 300% in Malaysia this year. I went to Tokyo and for the first time Japan has actually had some dengue. China known as a dengue country has now had thousands of cases in the South Western part of the country.

We've had, now if you go to India, India is like the biggest country in terms of dengue incidence and of course earlier in the year I was in Columbia and then number of markets everywhere from Brazil to Columbia which have dengue concerns.

What's really interesting is that, in the Northern Hemisphere we don’t really think about this, but if you are in South and you used the word dengue you see the emotional response of the people. In fact if I am doing a town hall with employees ask anybody here had dengue and you typically find a third of the people put their hands up.

And these are our own employees and I can tell you talk to those people who had dengue, they cannot wait for this vaccine to come. So I think we we'll have a very successful vaccine to launch. We are working with government.

We planned regulatory submissions in the first quarter of 2015 and could potentially have some of the first sales, by the end of 2015. Cerdelga is an oral drug for adult patients with Gaucher disease.

Again an interesting thing, I was talking to one opinion leader in a Latin American country and she says the interesting about the pill is not only it is more convenient but for people who have been taking infusions every two weeks for the entire life, having to just take a pill is -- has been expressed to her as a move back to normal again.

Because normal people take pills and don’t take infusions every two weeks. So, we don’t expect it to completely cannibalize Cerezyme because there is not a pediatric indication and lot of patients who are doing well but clearly lot of people live far from infusion centers and perhaps who have milder disease would not have treatment.

But I think, cannibalizing not only Cerezyme but some of our competitive products I think make this a very interesting opportunity for us. And dupilumab, we have had patients come and talk to us about how this has been transformative in their life. We have had people who have been suffering for 30 years from atopic dermatitis.

And we are not talking about a little bit of about dry skin here, we've got people who had over 50% of bodies covered with this. This has been disfigurative for people. This causes emotional problems, it's often associated with other immune diseases, and the ability to just take a shower and get dressed is an unbelievable experience for many patients.

Obviously, we are developing this for other indications. After very good Phase II results we're looking now to see in a more robust Phase IIB study, exactly how this is going to perform in severe asthma. And of course we also had a very positive proof of concept in nasal polyposis which is often associated by the way with asthma.

And we are now sure in the third quarter as well. So, very strong R&D progress. We also on Slide 14 have brought in a new medicine in diabetes called Afrezza and I think Afrezza obviously, I know you an awful lot of people I think we have got Exubera, we know Exubera Sanofi sold it to Pfizer for a nice chunk of money.

But I think because we knew of Exubera, we also were able to I think assess why Afrezza is different. One of the first if you see it immediately in the picture is the small elegant device that is there, and the other is that this has a PK profile that really can mimic the natural prandial insulin response.

They are pretty quick on and a pretty quick off, very easy to take. We are not necessarily seeing it just to replace injection but we know is that there is often a lost decade that many specialists refer to and this is a time it often takes for people to move from oral therapies which have really stopped working and transfer to an injectible product.

So we think actually that, even as an add on to oral could be an interesting way to get people on insulin therapy a little bit faster. Moving to Slide 15, we still got lots of momentum coming on the R&D side.

We will have and we expect Lemtrada decision in the US for MS, the Cerdelga decision in the EU, as well as QIV, the quadrivalent interdermal in the U.S. We talked about the filings of Alirocumab and also our insulin lispro in diabetes going into Phase III. So with that I will turn it over to Jérôme for our financials. .

Thank you very much Chris. Good morning and good afternoon everyone. So as Chris mentioned earlier, Sanofi has delivered both solid top and bottom line growth at constant exchange rate this quarter which reflects the consistent execution on our strategy. And we say they are roughly €8.1 billion up 5.1% on business EPS of €1.47 billion, up 10.3%.

Our results in the third quarter were once again driven by the strong performance across our growth platforms. Now as we move onto Slide 17, you can see that light increase this quarter as mentioned already by Chris is concentric movements had only the limited impact in the third quarter which was mainly due to the strengthening of the U.S. dollar.

So this quarter sales were impacted by a limited €81 million, or minus 1% versus last year due to exchange rate impact. And at the business EPS level, we experienced a negative currency impact of 2.2% which is €0.03 in the same period.

So clearly this is much smaller than recent quarters and currency is impacting sales in third quarter while primarily the Argentine Peso, the Japanese Yen, and the Russian Ruble and the impact of the U.S. dollar strength was very limited.

Of course we cannot predict the exchange rate movements in the coming two months, but if we just assume September 2014 exchange rates and we assume that they remain stable through the fourth quarter of the year. The negative foreign currency impact we have experienced the past couple of years is expecting to turn positive in the first quarter.

So, assuming September our exchange rate remaining stable once again till the end of 2014, the negative foreign currency impact on full year of 2014 would be 2% to 3%, 2 to 3 percentage points, sorry, on sales of between 3 to 4 percentage points on business EPS.

Currency impact in September, exchange rates for October which would be somewhat more favorable. For additional information on foreign exchange sensitivity to currency which may help you refine your modeling at the exchange rate during the year please refer to the last slide in the appendix of our slide deck.

Now let us move on to the next slide, Slide 18. So before looking closer at the details of the P&L, you can see here once again in the third quarter we managed to leverage our top line growth to faster earning growth. So basically you see sales have been growing 5.1%, the gross profit is growing 7.3%, and the BOI is growing by 11%.

So this quarter as a result of limited entries of our cost of sales or a slight decline in R&D, business operating income increased by 11% and also we have positive increase of the BOI margin to 30.9% which is 1.4% higher than last year. Also I would like to point out a couple of other elements on this slide.

First of all the third quarter marks the second time that we are approximately reconsolidating our ownership in Regeneron. We had highlighted to you previously that we expect to benefit from our investment in Regeneron by approximately €45 million on a full year basis in 2014. That is for three quarters actually since the beginning of April.

The contribution from Regeneron is booked on the share of profit of associates and reached around the quarter of €43 million in Q3. So basically one quarter for what is expected for the full year.

Additionally looking at the other current operating income line, this quarter includes a payment of €40 million before tax resulting from the termination of the licensing agreements in the U.S. Now looking at slide 19, we see that the cost of sales remain stable at €2.9 billion in the quarter, up 0.7% at constant exchange rate.

As a result of the stronger sales growth, gross margin improved once again in the third quarter up 1.4% in Q3 versus the same quarter of last year. This favorable trend mainly reflects a recovery for manufacturing issues at Sanofi Pasteur as mentioned already by Chris in particular for the Toronto site.

We also saw an improvement in the sales performance at Genzyme capital with sales ramp up of Aubagio which Chris mentioned earlier during the call. Lastly I would like to mention the positive mix fact in the U.S. Now in China which have continued to see improved gross margin as well.

On the full year basis in all year of 2014 we continue to expect improvement in the gross margin compared to last year. Turning to next slide 20, you can see that we continue to control our R&D expenses rigorously which resulted in slight decrease by 2.6% at constant exchange rate in the quarter.

I mean of course the valuation of our quarter depends upon when you end a study, when you start another one, so in the third quarter we have lower expenses in our currency. We also completed the EDITION trial program, the Toujeo for diabetes, which especially explained the decrease in R&D expenses.

These items were somewhat offset by the higher expenses with development program for dupilumab. As already guided we confirmed to expect R&D expenses to slightly increase during 2014 while staying below the €5 billion already mentioned. Now I advanced to Slide 21.

So we see the SG&A expenses increase by 10% at constant exchange rate in the third quarter to €2.2 billion. So, clearly there is an increase which we have already mentioned, which largely reflects the rebound from a low base for commercial activities in China but also investments in our commercial infrastructure.

For, example we invested in premarketing activities for our upcoming product launches as well as for Genzyme launch in MS and rare disease. We also saw higher A&P spend in the U.S. in our animal health business in connection with the stop of the bleeding in Frontline with the launch of NexGard and as mentioned already by Chris.

On the all on a full year basis we expect to keep the ratio of SG&A to say broadly stable compared to last year, which is in line with the guidance we communicated last February. Looking at the lower part of the P&L, on Slide 22 we again highlight that business EPS was up 10.2% in the quarter.

I may have here, that year-to-date business EPS was up 10.1% of constant exchange rate. Net financial expenses also increased in the third quarter to €139 million compared to €123 million in last years third quarter.

It is mainly due to lower revenues on the cash we have, due to varied interest rates we have and also to capital gain that we booked in Q3 last year. Our tax rate was 25% which is consistent with our full year guidance but increased by 1 percentage point on the same quarter last year.

Also I should point out that due to our share buyback activity during the first nine months of this year, the average number of shares outstanding declined by approximately 8 million shares related to the same period of last year. Up till now we have bought back shares for the total amount of €1.1 billion since the beginning of the year.

Moving to next Slide 23, you can see that free cash flow increased by about 60% in the first nine months which is faster than profits and reached more than €4.2 billion year-to-date. This is a result of our tight control on working capital, on capital expenditure.

Despite the fact that we have had higher working capital at the end of Q3 in general because of the higher sales of vaccines which have not been yet packed. The cash flow statement also includes the dividend payment of course of €3.7 billion, approximately by the second quarter.

As well as our investments in biotech partnerships both in Regeneron and Alnylam which totaled about €2.2 billion during the first nine months net off disposals. As you also can see our net debt at the end of June was up at end of September, so it was approximately €9.2 billion which is slightly below our net debt target which we continue to monitor.

So, in summary we are pleased with the continued execution of our strategy on the strong financial performance in the third quarter. As we look to the fourth quarter, we want to remind you of a few items for your modeling consideration.

First recall that last year's fourth quarter included a payment of €92 million before tax following the amendment of the Actonel agreement with Warner Chilcott on an income of €93 million before tax resulting from the Rituxan arbitration between Hoechst and Genentech.

In the first quarter of 2014 for what I know, we should have more limited run off of that type and we could include a positive impact of the disclosure of some minor products in France and Italy, generating a profit of approximately €70 million before tax.

Second, we expect to continue progressive improvement of the supply situation for vaccines on the continuation of trends we are seeing in the flu business in the Northern Hemisphere. Lastly we also continue to invest in our late stage pipeline and premarketing activities for our upcoming launches.

Given these considerations and taking into account the performance so far of the 10% increase of our EPS by taking also into account what I just described, we continue to expect business EPS to grow between 6% and 8% on a full year basis 2014. I will now handover to Chris to wrap up. .

Thanks Jérôme. So now again good results. We continue to grow the sales at mid single digits where they leverage P&L.

Growth platforms up at 10%, earnings per share guidance is reconfirmed and I think as I said before, I think what's really driving a lot of us internally is the opportunity to launch a number of new medicines, not only next year but in pretty much pretty regularly in the years to come. So with that we will Sébastien open up for questions. .

Thanks Chris. Operator we are now ready to open the call to questions. I would like to ask participants as always to only ask one or two questions at a time. Anybody can always come back into the queue to ask further questions if need be. Operator we are ready. .

Thank you. (Operator Instructions). We have a question from Peter Verdult from Citi. Please go ahead. .

Gil for Peter from Citi. Two questions one for Peter, one for Chris. Peter can we just talk about diabetes, I mean just want to get a better sense in terms of the significant change in the outlook for the diabetes market, how much of that is Novo specific versus just the general deterioration of the U.S.

reimbursement outlook from a payer pressure perspective and what you expect from channel mix changes? That's question number 1. And one for you Chris, I mean you laid out a clear strategy when you arrived as CEO and it clearly showed that you created value with Genzyme.

Is the company now in a good position in your view to execute another major transaction to diversify away from diabetes, thank you?.

Just on diabetes, you know we can't comment on any competitor. What I will say though is there is not really a -- deteriorating payer environment only works if you have actually people who are going to actually offer something in return.

So in other words if someone wants price protection or someone wants a higher rebate it only works if there is a competitive offer on the table. I mean payers play one person off against the other, that's the way it works. So, there really is only one dynamic and that is competitive pressure out there.

So, I think obviously what we do is we look at what has happened with previous accounts dialogue with payers. This I think is the important is that we believe we have secured extremely strong coverage and still at a very good price point. There is an adjustment in a one year time frame but I think it actually positions the company well.

And we have Toujeo and Afrezza to launch, so we continue to believe that diabetes will contribute to the growth of the company over the medium term. Concerning diversification away from it, it is less than 20% of our sales today are in U.S.

and Europe on diabetes and I think when you look at it, the company still grew its bottom line here at 10% even though clearly the diabetes growth is significantly less than what you saw in the first two quarters of the year. That is the advantage of the diversified model.

The most accretive way that we can continue that diversifications through the launch of new products. Doing an acquisition doesn’t change anything on diabetes. So, we are going to continue to grow and develop our diabetes franchise, whether or not you want to add something in terms of an acquisition, is something you can do it anytime.

You don’t have to wait until you are concerned about diabetes or not. The reality is that, you have to do a transaction though that makes financial sense for our shareholders. Today the cost of capital, of debt capital is virtually zero and that's often reflected in a lot of asset prices.

We continue to look at everything but we have continued to look at everything no matter what the diabetes business is. We are still very big company and I think the growth prospects when you add a new product is good. So I don’t particularly see a need that we have to go do a deal. But I think the company is actually pretty well diversified today..

Thank you..

Next question please..

The next question is from Tim Anderson from Sanford Bernstein. Please go ahead. .

Hi, okay so obviously on Lantus, to me it is really strange to see this action you guys have taken and there is only two possibilities, one is that Toujeo was going to get fully blocked and so you are buying access for Toujeo. But I don’t see how that is hardly the case, because Toujeo is not approved.

So, it narrows down to only one other possibility which was Novo competing on price with Levemir.

So, I know you don’t want to comment on a given competitor but are there other competitors besides that I am missing, that's the only possibility I can think of and if you could comment on your ability to secure access for Toujeo at this point and whether I am mistaken by thinking that you probably can't wrap the part of the deal? And then last question on this whole topic, is this multiyear contracting we are talking about normally it appears that you only want to do this sort of thing one year at a time as we know that the market is changing?.

No, all I can say is that we are talking about competitive pricing there. .

That's it..

Yeah..

Okay and then Toujeo long-term access, you know, market access for Toujeo in 2015?.

You know I think Toujeo is going to stand on its own two feet. It is a product that’s got a benefit on hypoglycemia. We have clearly been talking to payers and key opinion leaders. But the market access will occur when the product is launched as is normal. And we believe that actually Toujeo has a very strong market positioning.

I think over time we're going to see this basal insulin market being a competition again between two players. It will be Toujeo against Tresiba and the benefit is to Toujeo; A) gets to market first and B) now we have a bigger base of prescriptions to build Toujeo off of.

And three we actually believe we got a better profile in terms of the PK PD profile which leads a different titration schedule and actually better 24 hour coverage. So, that’s an independent thing. So that's why we are confident about launching Toujeo but that’s not on today's agenda..

And is it only one year contracting cycle most likely for Lantus and Toujeo?.

It's kind of a mix, so we can't really say Tim..

Okay, thank you. .

Thank you. We have a next question from Mark Clark, Deutsche Bank. Please go ahead..

Mark Clark - Deutsche Bank:.

:.

Mark on the rebate question I mean, basically you mean I tweak, so you start with the rough price which makes you work your rough phase. It is blocked in the 20-F and in one of the appendixes and then I mean you come for the rebates. And of course the rebates here will be a combination of milky factors.

I mean, on one hand you have the rebates of the commercial channels, you have the rebates on the public channels, you have the impact of the coverage gap, so all that will be booked into the same line.

So I think that we have given already the guidance for next year which will be more flat but I don’t think we are going to give more guidance, a more detailed guidance but the way it works is that you will see an increase in rebates clearly time passing.

At the same time you should look at 2014 to start with, I mean clearly we have seen that everything being equal, an increase of the rough price, I mean transform into a net inflationary I mean a net positive in fact even after rebates and this will whatever is the rebate this will be made in two if we take any other price increase next year on the price point.

.

This is going to be probably pushing you too far but historically Chris you talked about growing the franchise in diabetes through to last of price increase, do you think we can look forward to a return to growth in 2016 or to the fact as we are talking about today flow through 2016 with further contracting pressure next year, etc?.

I think it is difficult to speculate on what everybody else is going to do. I will tell you how I look at this. Generally what you see in these types of market is that you have some people, essentially in oligopoly situations here. So there is usually an attempt in that, we saw this in flu vaccine a number of years ago.

Somebody comes in, tries to gain some market share with price, and everybody aligns their price. And so nobody really gains share. And so usually you don’t -- it is not really in anybody's interest but it could happen. But I think you are going to see people come in with branded products.

I think you have to also remember that the basal insulin market is not an isolated market. There are other insulin markets and therefore pricing in one segment can have an effect on others. You may well see migration from premix for instance or even human insulin into the basal market.

You have got players coming in, all three are proposing you know if I take Lilly as well branded products coming in, and none of us are going to make a return on the investment if everybody has a race to the bottom here.

I think Toujeo will increasingly be the product that overtakes Lantus and you add in Afrezza, then you also add Lyxumia and then you add LixiLan. So I think we have a number of options to look for growth in this segment overtime. .

Okay, thank you. .

Thank you. Our next question is from Alexandra Hauber from UBS. Please go ahead. .

Good afternoon, sorry just one more question from me again on the pricing in diabetes.

Chris, I think you said the rebates that you are getting in from next year, so just wondering why were sales flat this quarter, why did all this positive pricing you had in the first half suddenly evaporate? And then secondly on the SG&A line, given that you are going to have about 4 to 5 or 6 new product launches next year, what does that mean for SG&A, it is already up significantly this year, are we going to see more demand for you to add probably in the various regions and in other costs?.

Sorry, I was referring to some contracting that have been done towards the end of the year. There is an effect on price this year. There was an effect in the first half of the year and even some contracts are going to have an effect in this year. But the full year impact comes in 2015. But there is an impact in this year.

Both probably on price but we actually lost some market share because we lost a couple of accounts at the beginning of the year. The SG&A, I mean I think we are not going to give guidance on the whole year. I would just say yes, we will be investing in new products in a particularly Praluent, Toujeo, and Afrezza next year.

To a degree Toujeo and Afrezza can rely upon an existing promotional base from Lantus. But there will probably be an incremental investment beyond that. Praluent is a new product and there will be investment behind that.

Again we're trying to leave the diabetes franchise and not because you are seeing an awful lot of co-morbidity in the patients at risk with high cholesterol and diabetes. And obviously we're not talking about especially at the launch period a primary care product. Cerdelga really can fit into the Cerezyme field for us.

Dengue is a largely going to be a government contracting approach. So I think there will be some; we also believe we still have opportunities to reduce cost in the business. So we will be looking at cost mitigation on that. So -- but there is going to be some investment on these products next year absolutely..

Thank you.

But I would point out also Alexandra, I mean you know we launched things like -- we actually have put about €400 million into new promotional activity in 2012 and another €700 million in to commercial and R&D in 2013. We didn’t really see that because we were able to offset a number of those costs through cost savings.

I'm not sure if we can do it a 100% but I wouldn’t also assume that a 100% of those costs are going to be translated to the bottom line..

Okay. Thank you very clear..

Next question please..

Vincent Meunier from Morgan Stanley. Please go ahead..

Good afternoon and thank you for taking on my question. The first one is a follow up again on the Lantus and diabetes. For 2015 assuming flat sales for the diabetes division globally, this suggests a U.S. sales decline for Lantus.

Can you confirm that? And do you think that the pricing power can be regained in this market after that phase of higher rebates or not? And I have another question on the PCSK9 in the context of Amgen infringement against the patents of PCSK9.

Can you confirm that there is no restrictions in terms of manufacturing of Alirocumab and also on your ability to file by year-end and more broadly what are the next steps and what kind of prediction can you put in place here? Thank you..

I think -- you know we try to be transparent here and trying to give you guys some outlook. We don’t really want to get into a 2015 guidance note on region-by-region conversation. I think you know the math is pretty obvious on this.

I think also we're trying to be prudent at this point but I can’t really speculate on what assumptions are in market share. But I think the next question is important, there is and always has been more to Sanofi than diabetes. And that’s where we're going. And PCSK9 is one.

You know the patent situation was something that was investigated by the company at the time we opted into the program with Regeneron. So obviously our own patent attorneys took a view of the strength of those patents that Amgen is trying to assert.

And obviously, that analysis lead us to opt in and we're going to be vigorously defending our situation. And at this point we see no delay to the launch of PCSK9, to the filing of PCSK9..

Okay, thank you very much..

Thank you. Our next question is from Graham Parry from Bank of America - Merrill Lynch. Please go ahead..

Thanks for taking my question. So again I am afraid on the like the diabetes share, I think everyone is surprised to see no growth –- there is no incremental competition from new entrants. So perhaps you could help us to understand the dynamics into 2016 little bit more.

You made a few comments this morning talking about a sustainable path post this and still expecting diabetes to contribute to the growth over the medium term.

Does that mean you've repriced the market now to a level that you are comfortable with and you expect less price competition in 2016 as you commence on sort of floor level? And could you comment on where you see your net pricing being versus 2011, do you think this brings you more into line? And then secondly a question for Chris.

There's obviously a lot of stories surrounding the media about your relationship with the Board and your tenure.

I'm just wondering if following yesterday's Board meeting you’ve received any reassurances from the Board that your position is secure and you have their backing to run the business and execute further deals?.

:.

I think Peter I know you want to comment further but I mean I think at this stage we can't really start speculating on 2016. You know competitive pricing doesn’t really depend on us.

But I would just say the pricing is far more complex obviously because you got a Medicaid segment, you have a Medicare segment, you have a commercial book of business segment. And as I said I think our view is that we've got a very, very solid competitive position now where we are. If you have got over 90% coverage, you got whole market to go after.

You know I can't really say anything more than I've said this morning. I'm the CEO of the company, I'm focused on running the business. The Board put out a statement saying that the issue of succession was not on their agenda. And we are pushing ahead on all fronts..

So Graham on your question on the cost margin, I mean A) I mean once again we're not going, we're not in the position to give you guidance for next year.

So I mean how can you manage gross margin versus SG&A along with what Chris said earlier and even on the SG&A, I mean there are few ways to get cost on one hand when it is slow, keep projects on the other hand. What is important when you think about gross margin is the mix of the business.

So it's clear that, I mean you're right, I mean if whatever happens of course when you increase the share price advantage -- it is looking favorable to the overall gross margin. So I mean this will not be exactly similar next year. Now I mean there are other trends. I mean we mentioned earlier today and that the vaccines gross margin should improve.

It has improved in 2014 and as you heard in vaccine I mean all the improvements you managed to put in place stopped going to inventory. So you unwind the positive impact I mean over time which means that the improvements you are doing today will impact our gross margin everything being equally in 2015-2016.

Genzyme is also another area as long as it grows. I mean Genzyme is a vertical activity. So the more you produce I mean the better the gross margin, simply because the verticals are across our fixed cost. So these can be very significant positive drivers. I would not forget that if we continue to improve the overall operation, industrial operations.

If you remember we announced a number of cost savings back three years ago on our industrial foot print, on our industrial you know acquisition. And all in all I mean this should allow us to have a good control on gross margin. However this mix of business will work exactly is a bit early to say.

I would like to -- I would just remind you that as for 2014 we are now planning to improve the gross margin. And this is a guidance we give at the beginning of the year and now it was confirmed over -- just confirmed today that we are going to improve the gross margin in 2014. So I think this is a bit where we are.

If you look forward I mean the main drivers beyond what I said is a new launch. So I mean in general as you know I mean the new product stand towards a higher gross margin typically because they're highly priced basically because they're just price to pay for the innovation we spent before and the energy we spent before.

So if the mix goes more towards more innovative products clearly will also be fair farewell to our gross margin. This is why the new medium run we feel comfortable that we can continue to increase or improve our gross margin from where we are today..

Can you just come back on the Lantus and pricing, just in terms of where you said you are today relative to competitors.

I mean historically there's been a much narrow rebate for Lantus than your main competitor, do you feel that you're more close to the pricing patchy level now or do you feel like there could still be pressure with that target for pressure in 2016? Thank you..

So, Graham its Peter speaking. I mean, obviously we do not know the exact price point of the competition. And this is also a moving target. It varies, as Chris said account for account and channel by channel. And it is probably fair to assume that after the pricing actions that we have taken now, we are closer to where Levemir was or is.

How this is going to unfold in the future is few speculations. I would not enter into that. Again the only thought I would give you however is that Lilly and Novo and ourselves are entering into the innovation phase in basal insulin. So I think it is not in the interest of the existing players to go for a race to the bottom..

Thank you..

Next question please..

Our next question is from Jeff Holford from Jefferies, please go ahead..

Hi, thanks for taking my questions. I'm still struggling a little bit on the Lantus and the pricing here because in what's still basically a co-preferred market and we've Novo planning the launch in new products here as well. Not too far it seems strange they might lead and you around this price competition here.

Can you just maybe reassure us that this isn't push back from the payers on the Sanofi's own recent price action in 2013 Potentially the company had been too aggressive in the past on price increases? And then also as a follow up does this at all impact what your pricing strategy might be for Toujeo on launch? You had sort of referred to that as a premium priced product relative to Lantus in the past.

I wonder if you're still thinking that might be the right strategy to go with? Thank you..

I'm not aware of ever having described Toujeo as a premium priced product. I think on the -- the payer dynamics you go in on a negotiating contracts and we obviously are in competitive situations on these contracts. The pricing on the VAC (ph) basis is not so relevant. And is largely followed with what Levemir has done.

I think it’s a -- the competitive situation. I really don't know what to say more than that. Next question please..

We have the next question from Richard Vosser from JP Morgan. Please go ahead..

Thanks very much for taking my questions. Two please. Just on Lantus but in a different geography. If we could just talk about how you're seeing the growth in emerging markets at the moment.

Whether you're seeing in certain markets increased competition from Tresiba and how you're seeing the Japanese market develop at the moment? And then away from diabetes just into animal health, obviously the NexGard launch has been pretty good, if you could give us an idea how the conversations are going with that into 2015 and also reassure us perhaps if frontline is now stable as well? Thanks very much..

So I’ll take the question on Lantus ex-U.S. So emerging markets the product is growing extremely dynamically and we do foresee that this continues in the future. For example in China that we have well the effect accorded by a similar competition since -- well since a decade now.

And I'm actually looking at the third quarter growth of Lantus in China, we had a very healthy 35% growth rate. So and that’s basically what you see in many emerging markets.

And Japan we are in a specific situation to the extent that we Tresiba with a pretty liberal market access and what we see is that we hold on to two-thirds or let's say 65% new patient share with Lantus. So I think we’re doing a pretty good job in defending our share.

In the overall share we still hold a 60% market share with Lantus whereas Tresiba must be somewhere a little bit above 20% in the last monthly data. So that’s basically what I can give you as an update on the ex-U.S. situation. Perhaps last point in Europe as Chris mentioned in the introduction is a very strong third quarter.

We are close to 10% growth for Lantus, overall more than 10% growth on diabetes in Europe. And this is actually a with a very slight negative on prices even more than that in volume. So it’s a very healthy performance actually..

On animal health sorry, the question was?.

It was just basically reassuring us on frontline being stable into going forward and into 2015 and how we should think about it element of the NexGard launch through the annualization of that launch next year?.

So NexGard has not yet been launched in all markets so we would expect further launches particularly in Europe. And the only thing that will happen is we will have competitor activity as we know from very soon from Merck. So it is a competitive space. So I don’t think we're going to see as stronger growth in Merial next year.

But we would expect to see the franchise continue to grow..

Thanks very much..

Thank you. Our next question is from Steve Scala from Cowen. Please go ahead..

Thank you and apologies for a couple of more diabetes questions. First does your Lantus guidance assume Lilly launches the Biosimilar in the EU or does Sanofi have a legal strategy to block the launch, so no launch is assumed? Or maybe it's irrelevant whether or not Lilly launches as it relates to your guidance? So that’s the first question.

Second question is Chris you’ve previously said that a good proxy for conversion of Lantus to Toujeo was compactone (ph) which I understand converted about 50% of prescriptions in about 6 months. Would you detail the strategy to deliver that degree of conversion beyond the superior hypoglycemia data? Thank you..

Will you do the Biosimilar here?.

Yeah, so and the assumptions for 2015 commercially we have embedded a Biosimilar launch in Europe by Lilly..

And in terms of the analogue, I mean what we're really trying to do this is obviously cannibalize Lantus. The -- you can look at either copaxone, you could look at a Tresiba. In Japan there is a number of other analogues out there. Obviously this will depend on how fast you get out the market on market access.

The most important is I think that we’re going to be putting all of our promotional effort behind Toujeo in next year. And I think there are a couple of strategies that will be different in terms of promotion that we're doing but we will be able to tell you that more close to launch..

Thank you..

Thank you. Our next question from Philippe Lennon from Natixis. Please go ahead..

Good afternoon gentlemen. Thank you for taking my question. I'd like to ask the last question in another way. You’ve given half of the guidance for 2015 with the diabetes indication. But in Q3 2014 the rest of the business has compensated for that.

And you’ve been at 5% growth organically which has been kind of guidance overtime, it's not to speak on one figure but the question is will you be so far away from that level in 2015 for the whole group? And can we anticipate, in your view, for the few next years this kind of level? And maybe a second question on Lemtrada which is still not taking off.

So is there any hope here or is it a lost cause?.

You know the big we have always is, you know the minute you start trying to provide some transparency on some major aspects of the business everybody wants to know about the rest. We will be giving guidance for 2015 in with the fourth quarter results in February.

And so the idea was just to say look, we have seen a shift in market dynamics in part of the business. And I would just say we've seen a shift market dynamics trying to help quantify that for you. But obviously the rest of the business continues to develop. We have our growth platforms, we have launches of new products.

There are cost cutting maneuvers ongoing. All of that is going in to a budget process for 2015 that has not yet been finalized and will typically be finalized for another four to six weeks. And you know we will be able to provide a guidance for the whole business with the earnings announcement in February..

Okay. And on Lemtrada.

On Lemtrada I think, let's -- lets first wait for the FDA decision and where that is. The FDA -- Lemtrada is a first I think -- you know targeted to extrapolate from Europe sales because if the FDA doesn’t approve a product straight away even if you get it approved elsewhere, there's still a waiting to see what the FDA does.

So I wouldn’t use that and you have seen it with other products. I mean if you looked at the InterMune product for example. I'm quite certain that that Roche when they bought InterMune didn’t extrapolate from the European sales. So there is that impact.

What we have seen and I went to ECTRIMS just a few weeks ago in September, which is a Global MS Conference. There are an awful lot of opinion leaders that have used Lemtrada, loved Lemtrada.

A lot of them are believing that it is actually going to end up being patient driven but it is very clear that this is a product that has had a history and it is going to take time for people to really get used to using it.

But for those who have used it, we are seeing people, we had a patient actually address our top 300 meeting at the beginning of September. This is a person that had the -- had Lemtrada seven years ago and is back to running 5K runs and living a normal life and taking no medicines.

So when I was talking a number of KOLs in Australia for example where we have been really trying to use this in a big way, very positive but it will take some time for that patient experience to be seen by enough physicians. And so I think overtime this is an important medicine but I would not expect this medicine to rapidly take off out of the shoe.

But let's wait and see what the FDA decision is before we think of anything definitive. .

Thank you. .

Thank you. Our next question is from Michael Leuchten from Barclays. Please go ahead. .

Thank you. It is Michael Leuchten from Barclays. Just taking the changing dynamics, Chris you mentioned a little bit broader, I think your methods around pricing is a clear on the volume side of the story, however, in the past you have commented about how this market is relatively stable and sticky on the insulin side.

Do you see changes on that side of the coin as well, is managed care able to drive a more dynamic momentum into this market that historically has been quite sticky? And then secondly on the government programs that you have mentioned, there is a potential threat that you get the best pricing kick in on a franchise like Lantus is, I just wondered whether that is part of your assumption on the pricing side or whether you are clear off having that negative collateral damage? Thank you.

.

Do you want to take on the….

Yeah, so on the markets question, you see in these an uptake of roughly 1% to 1.5% of the insulin clause as a whole. Most of that increment goes however, into Medicaid. There is a channel which is of course the least profitable channel. Your second part of the question was….

In terms of the changes of the dynamics in the market, obviously your pricing side was very clear, but relating to market?.

So, that's -- the best price in Medicaid is baked into the assumptions. Next question please..

Our next question is from Luisa Hector from Exane. Please go ahead. .

Thank you, good afternoon. So, first on Toujeo, I noticed on the timeline that the U.S.

decision has moved into Q1 which seems a little bit earlier versus the first half and I just wondered if there is any particular reason for that? And just to confirm that whether or not you are expecting an advisory panel, I am assuming if you could just update us on that? And then Chris, you said the key to the success of Toujeo will be the market access, so in your recent rounds of contracting, have you been discussing Toujeo, does it form a separate conversation, you know how far advanced are you in discussing that product with the payer? And maybe I could ask on dengue, how many doses do you expect to have at launch and as you have been around Asia recently, is there any clarity on how you could incorporate this into the vaccine schedule, would it be a particular age cohort, and how you can ensure that everybody's got the three doses over the quite wide time frame, any color there? Thank you.

.

So, the filing -- so approval date for Toujeo is Q1 for the U.S. and Q2 for EU. So I think it has been a short form to stay both in H1 but there is no real change on the expressive timeline for Toujeo. When I talked about fair market access, it is principally a question of when you start trial, okay, start looking at cannibalization rates.

You have to make sure that you are starting from the point where you get a broad coverage and today we just don’t know but it is not -- I mean it is important for the longer term but it will be more of a factor about how big your shelves get to be in 2015.

You know we haven’t -- I mean you have discussions with payers at a medical level, at a very general level but you really can't go into any detail with payers until the product is approved. You can orient the product with your medical people but you can't actually engage with the pharmacy benefit people until you have an approval.

On dengue, dengue we have actually built a model that we work with ministries of health on. It takes the past 10 years of data typically for a country of dengue incidents. In some countries it depends on the level of surveillance data that is there.

I mean if I take Malaysia for example, I have excellent tracking data and so you can look at the incidents by state in Malaysia and also by age cohort. So you can actually model and say if you vaccinate so many people, here is what you would expect the incidents of dengue to do.

So, is it this age group or that, and what you find is actually there is a little difference between countries. For example in Malaysia you actually see more dengue related death in a young adult population where as in most countries you would actually see it in a younger child or adolescent.

But because Malaysia is a little less endemic therefore if you get it when you are a young adult you haven’t necessarily built up any antibodies from prior infection.

So, this is what we are working through country-by-country and being able to help public health authorities figure out what is the right vaccination cohort, what is the right amount to spend upfront.

I mean you can possibly have a target of X percent of the dengue adverse population, do you do that over three years, do you do that over two years, do you do that over five years.

You can model then what the impact on the insulin to dengue is because, the interesting thing about this vaccine is that it is not only the people you are protecting but everybody you have protected is no longer infecting anybody else. So you have, the more you protect people the less there is a lot of people being affected.

So you have got a dual impact if you like and all of that is being modeled. For the moment we haven’t actually said how many doses we have available, largely because we don’t want to necessarily be giving a sales forecast on that.

But we do believe that -- we have said that on an annualized basis we can certainly be able to supply about 100 million doses but we are also just in the process of working on the product and we may have yield improvements in a few others. So that's the only guidance I can give at this point..

Okay, thank you. .

We are going to take a couple of more questions operator..

Thank you. Our next question is from Fabian Wenner from Kepler Cheuvreux. Please go ahead. .

Hey, good afternoon and sorry to come back to the dominating question.

I guess you are not going to give us any detail on what the extent of the rebates that you have given for 2015 are, but I want to come back to Mark's question about how much of the impact on the sales level you can actually compensate on the bottom line and I think Chris you did say that you do see flexibility on the cross plans to at least counter some of the effect.

I just wondered if you can give us any indication how much you can reign in actually given that most of the impact is going to be on pricing and not on volumes, whether you can actually reign in some of the sales force, what other cost items you can flexiblize? Thank you..

I think first of all no, we can't give you any details on the rebates mostly from I am sure our competitors would like to know that. So, we can't really do that and for the rest it comes back to we don’t really want to give guidance for 2015. There are going to be cost reductions that we can do, we have got launches of products that we can do.

We could be investing in new medicines. So, we will be happy to put all of that together for you there. You know again the real objective was we wanted to give you a heads up because we had perceived some change in market dynamic already at the half year and that became more crystal in the third quarter.

And that is really all this is meant to be is to help get at least some level of about fund information so you can do more modeling..

If I can just try follow up to that, are you surprised somewhat about the timing of the competitors behavior.

Couldn’t that competitor have behaved this way basically year-over-year or even earlier than that, was that kind of pricing pressure?.

All I can say is that actually you have to go ask the competitor. I think if you look at -- markets are dynamic places and I would say that this is a change in our own expectations, there is no question about it..

Thank you. .

We are going take the last question operator. .

Thank you very much. Our next question from Seamus Fernandez from Leerink. Please go ahead. .

Thanks very much for taking the questions. So, just two questions, first on your views on the prospects of a directly substitutable generic in the insulin space, is this something that one of the generic manufacturers Mylan specifically has commented on.

Really the question surrounds where you think breakeven pricing might sit for a smaller participant in the market in that context and how much room there is for price thresholds and where you see the challenges for a directly substitutable generic in that regard? And then the second question is, as we think about the launch trajectory of a product like alirocumab without outcomes data, how should we think about the launch trajectory of alirocumab in the context of both another competitor who may help grow the market but also the absence of the outcomes data?.

You know it is Mylan Biocon is number of years behind, so I think it will be difficult to speculate on what the market is going to be by the time they get there.

By then you have got Toujeo out there, you got probably a Tresiba, probably a Lilly Biosimilar, possibly a Lilly novel basal and I think by the time that comes you are going to have probably have seen a market between first generation basal insulin and second generation. So, I think we will wait and see.

We know that Lilly has not gone for a substitutable Biosimilar. And I think trying to do a substitutable and doing the clinical studies, you just have to question about what economics of that are for the company wanting to do that. But I think it is too early to speculate on that today.

On alirocumab we will give you a whole lot more but add two more of these questions through that and after 20th of November I think what we will really be trying to communicate on is what are physician attitudes. Do physicians believe that lowering cholesterol is a good thing.

And if you particularly have patients who have multiple risk factors, if you have someone who has already had a heart attack and who despite high statin use has still got high cholesterol, maybe overweight, maybe still smoking, possibly have diabetes, and you can offer a product that dramatically reduces their cholesterol by 60%.

How many physicians would be willing to treat that patient with or without outcomes data.

And I think we will be able to give you some more indication of that but I am sure if you go ask your favorite cardiologist, that cardiologist whether he or she thinks it is good idea to reduce LDL, I think you will find at least nine times out of ten or 99 times out of 100 that they think it is a good idea.

I think you are going to be really in this period of really looking at a number of targeted populations between the SH population, the statin intolerant population, the secondary prevention population. You are not going to be out there to try to replace statins but there is probably a bigger unmet need than most people think.

But let's try to distill this a little bit more for everybody as we have got a little more time till 20th of November. .

Thank you Chris. So with that we would like to conclude the call and thank everybody for your interest in Sanofi today. We look forward to having you follow the IR Thematic Seminar on new medicines and vaccines which will take place on November 20th in Cambridge, Massachusetts. With that bye-bye. .

Thank you. Ladies and gentlemen this concludes the conference call. Thank you all for your participation. You may now disconnect..